We should’ve given the monetarists more credit.

That was one ostensible lesson from the pandemic inflation. I say “ostensible” because not everyone believes it.

Monetarists will tell you otherwise, but the theories they espouse were, in fact, discredited a long time ago, and on any number of occasions since then.

Even a blind squirrel finds a nut every now and again, and the monetarist cause was helped immensely by the sheer scope of money supply growth in COVID’s wake.

We can debate whether, and to what extent, smoking a cigarette twice a year materially raises your risk of cancer, but what isn’t debatable is the contention that smoking a lot of cigarettes, all the time, dramatically increases health risks. The figure below suggests we might’ve taken things so far in the 2020s that monetarists couldn’t help but be right.

Of course, velocity has a (big) part to play, and on that front, it mattered that the COVID stimulus was transparently a fiscal-monetary partnership which in some cases cut out the bank middleman entirely and in all cases was designed to ensure the transmission channel to the real economy operated as efficiently as possible.

Now, money supply is falling. Fast. And monetarists, emboldened by their first real success in decades (and maybe ever) are predicting a severe recession.

“The monetarists won the inflation forecasting contest, but the central bankers claim that was a fluke,” Simon Ward told Bloomberg this week, in the course of suggesting the scope and timing of a recession across developed markets constitutes a “rematch.”

The figure above is simple enough. And that’s really the problem.

It’s not so much that there isn’t anything to monetarism, it’s that there’s a lot to macroeconomics. If you try to simplify it, let alone mathematize it in a way that suggests it’s amenable to the same kind of study reserved for the hard sciences, you’re going to be wrong more than you’re right.

In this instance, monetarism may well end up being able to claim another victory. A downturn is indeed likely, and it’ll have something to do with decelerating money supply growth.

But that absolutely won’t count as any kind of across-the-board “vindication” for monetarists. They’ve been laboring in relative obscurity for decades precisely because, in many cases, they won’t heed their own advice: They exhort central bankers to keep the quantity of money “on the dashboard,” as Tim Congdon put it, but their own “dashboards” tend not to be the most diverse and comprehensive.

In the same linked remarks to Bloomberg, Ward wondered, “If the central bankers lose this one, and we move into recession or deflation, will there finally be a reckoning and clear-out?”

I can’t answer much definitively these days, but if Ward is asking whether one more in a never-ending string of policy failures for orthodox economics is going to prompt a wholesale overhaul in favor of money supply-targeting, I’m highly confident that the answer is “No.”